What Types of Incentives Should You Offer Your Employees?

Generally speaking, employers offer a variety of incentives because they want their employees to continue working—productively—for a long time. While it is sometimes necessary to take action when an employee’s performance is poor, keeping your staff long-term and helping them stay motivated makes good business sense. The average cost of onboarding a single new employee is around $4,000.00. So the right kind of incentives can actually save you money long term if they help reduce burnout and turnover.

Effective Incentive Structures for Startups and Businesses

Unsurprisingly, employees are most responsive to incentives that pay money. Managers can go about this in a few ways. 

  • Profit-sharing — This is a relatively easy way to incentivize employees. You may choose to set aside a certain percentage of monthly recurring revenue and/or client startup fees to pool around the office, either equally or proportional to each employee’s base pay. For an even more targeted approach, you could distribute a percentage of each month’s revenue gain to specific employees. 
  • Startup or retention bonuses — If you’re having trouble filling labor needs at your startup, consider paying bonuses to new employees who stay on for a certain amount of time. Similarly, it could be a good idea to offer raises when employees reach certain milestones (e.g., one-year, three-year, five-year, and ten-year bonuses). 
  • Discretionary bonuses — This type of bonus provides some flexibility for managers. Instead of providing regularly scheduled bonuses or raises, managers and executives can choose the amount and frequency of the bonuses they distribute. This type of bonus could also align with the completion of special projects. 
  • Free lunches or gift cards — These can be small but effective ways to show appreciation for your staff. Having lunch brought in one day means your employees won’t have to worry about buying lunch, spending time at night preparing lunch, or rushing out during their lunch hour to get something.

Not all incentives involve passing money from your company to employees. Some non-monetary incentives include: 

  • Formal recognition for employee performance or longevity at company events;
  • Handwritten notes for jobs well done;
  • Extra vacation days; or
  • Work-from-home days. 

Before Implementing an Employee Incentive Plan…

Make sure that you are actually incentivizing the behavior you want to incentivize. Rewarding employees for productivity while sacrificing quality can be an issue for some incentive structures. Make sure that incentives do not come at the expense of your company’s goals. Inadequate incentives can incidentally reward the wrong behaviors as well. 

Lastly, do not forget to consult an experienced California business attorney before having employees sign on the dotted line. Call us at (925) 399-1LAW if you need help with your employment policies and procedures or have questions you need answered about handling a potential problem with your staff.